I have been reviewing all of my calculations and looking at all the quotes I have got so far to consider what to do about the delay and the increased costs. Here is the full spreadsheet with all the calculations in it in full. It is fairly straight forward but basically column1 titled “Initial Estimate” is the initial estimate posted before, the next column is revised to reflect the actual figures so far and any additional estimates or revisions and the next column is the same with a revised purchase price (more later).
When I set out on this project my aim was to make a 20% return before tax and assumed that we would sell the property on. I have tried to take everything into account including figures for agents and solicitors fees on the sale and the cost of money (or lost interest) for three months. It is very easy to ignore or forget these figures and then claim a higher profit! In any event CGT has to be paid on the gain so while you want the profit to be as high as possible there is nothing to be gained by under stating it. My apologies for the way this table is formatted . Blogger is excellent in many things but getting tables and pictures to format properly requires the patience of a saint. I am sure you will get the idea. If I ever work out I why I'll fix it!
I still feel that there is flexibility in these numbers and I would hope that some of the expenditure figures would be lower than stated and that not all of the contingency will be required but in order to get to a 20% return before tax I need to shave near enough £10,000 of the initial estimates and £22,000 off the revised figures. On the prudent assumption that the difference is not going to be made up with an increased property price I think that this will be impossible. As a result, and taking advice from comments received on the blog and elsewhere, I feel that this project is only going to work with a reduced offer for the property of £174,900 obviously specifically selected to come under the stamp duty threshold. It still won’t be easy to get to 20% but I think that it will be possible to make 15% and that would not be a disaster.
| Initial Estimate | Quotes / Updates I | Quotes / Updates II | |
| Total Purchase Price | £185,000 | £185,000 | £174,900 |
| Legal Fees | £1,050 | £1,050 | £1,050 |
| Stamp Duty | £1,850 | £1,850 | £0 |
| Survey | £470 | £470 | £470 |
| Electrics / Re-Wriring | £3,000 | £2,776 | £2,776 |
| Clearance House and Garden | £2,000 | £2,000 | £2,000 |
| Central Heating | £4,000 | £6,200 | £6,200 |
| Bathroom | £1,000 | £1,000 | £1,000 |
| Windows and Doors | £3,500 | £3,731 | £3,731 |
| Upstairs Bathroom | £2,000 | £2,000 | £2,000 |
| Flooring and Tiling | £2,500 | £2,500 | £2,500 |
| Plastering and Making Good | £2,000 | £2,000 | £2,000 |
| Re-Decoration | £2,500 | £2,500 | £2,500 |
| Kitchen | £1,500 | £1,500 | £1,500 |
| Contingency | £3,000 | £3,000 | £3,000 |
| Items Added After Initial Estimate | |||
| Re-Rendering | £2,500 | £2,500 | |
| Re-Pointing | £1,500 | £1,500 | |
| DPC and Associated Rendering | £4,700 | £4,700 | |
| Wet rot repairs | £1,250 | £1,250 | |
| Total Expenditure | £30,370 | £42,527 | £40,677 |
| Total Price Completed Property | £215,370 | £227,527 | £215,577 |
| Cost of Money 3 Months @ 5.49% | £2,956 | £3,123 | £2,959 |
| Project Cost | £218,326 | £230,650 | £218,536 |
| Resale Price | £249,950 | £249,950 | £249,950 |
| Agents Fees on Sale | £2,500 | £2,500 | £2,500 |
| Legal Fees on Sale | £750 | £750 | £750 |
| Net Proceeds | £246,701 | £246,701 | £246,701 |
| Gross Profit | £31,624 | £19,300 | £31,414 |
| % Return on Capital (Gross) | 14.5% | 8.4% | 14.4% |
| CGT | £5,692 | £3,474 | £5,655 |
| Profit after CGT | £25,932 | £15,826 | £25,760 |
| % Return on Capital (Net) | 11.9% | 6.9% | 11.8% |
I still feel that there is flexibility in these numbers and I would hope that some of the expenditure figures would be lower than stated and that not all of the contingency will be required but in order to get to a 20% return before tax I need to shave near enough £10,000 of the initial estimates and £22,000 off the revised figures. On the prudent assumption that the difference is not going to be made up with an increased property price I think that this will be impossible. As a result, and taking advice from comments received on the blog and elsewhere, I feel that this project is only going to work with a reduced offer for the property of £174,900 obviously specifically selected to come under the stamp duty threshold. It still won’t be easy to get to 20% but I think that it will be possible to make 15% and that would not be a disaster.
There is only one thing stopping me. I haven’t made this proposal to the agent yet. That is tomorrow’s task although as I have sent them a link to this blog they may already know!
2 comments:
Evening. Funny how I can get bored doing this at work but then come home and find it quite relaxing having a quick look at your figures.
2 comments:
1. Why £174 950? I believe that when buying, rounding up is traditional (although £50 more expensive for you!). It may be better received by the Sellers.
2. Have you allowed for VAT on solicitor's and agent's fees?
Good luck!
PS There's an argument that says that money already spent should be removed from the calculation (e.g. survey, some legal costs) as of course you ain't getting that back so investment decisions based on a % return should be based on what is still to be spent if you proceed.....
Why £174950? That will be my poor understanding of SDLT. I thought it had to be under £175000 rather than £1750000 or less.
I guessed at the other fees so VAT is sort of included as I was non specific. In theory legal fees on selling a house are cheaper than buying one so that number should be ok.
VAT on estate agents fees will push it up a bit unless I can find an agent to act for under 1%. That might be possibe in the current climate.
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